Erin Towery

The Motives for Private Equity Buyouts of Private Firms: Evidence from U.S. Corporate Tax Returns

This paper uses corporate tax return data to study the motives for private equity (PE) buyouts of U.S. private firms between 1995 and 2009. In contrast with prior evidence that PE acquirers target public firms facing overinvestment problems, we find that PE acquirers target private firms facing underinvestment problems due to financing constraints. These firms tend to grow substantially post-buyout. We also find some evidence that PE buyers target industry laggards as well, and engineer operational turnarounds in these firms.

Let's Talk About Tax: The Determinants and Consequences of Income Tax Mentions During Conference Calls

This study uses voluntary income tax disclosures to examine how managers trade off the relative costs and benefits of voluntary disclosure. We first provide evidence that income tax mentions in quarterly earnings announcements and during earnings conference calls are increasing in tax reporting complexity. These results are consistent with managers attempting to improve the quality of the information environment through enhanced voluntary disclosure. However, we also find that income tax mentions are decreasing in the likelihood of near-continuous IRS audit, suggesting that proprietary costs discourage managers from voluntarily disclosing tax information. When comparing the magnitude of each effect, reporting complexity is a relatively more significant consideration in managers’ voluntary tax disclosure decisions on average. Even for firms with the highest proprietary costs, tax reporting complexity still affects voluntary disclosure decisions. When we examine specific tax disclosure topics, the relative importance of complexity and proprietary costs varies in expected ways. This study furthers our understanding of the relative importance of various inputs to the voluntary disclosure decision and provides insight into the drivers of voluntary income tax disclosures – a previously underexplored yet important area as regulators and activists worldwide call for greater tax transparency.